First long-tenor political risk insurance to unlock US$ 1.4bn in clean-energy investment in Africa
A total of US$ 1.4bn in additional clean-energy investment across Africa will be supported by a new investment insurance initiative launched by Munich Re, the African Trade Insurance Agency (ATI) and the European Investment Bank (EIB). The African Energy Guarantee Facility (AEGF) will provide the first dedicated reinsurance facility for sustainable energy projects across Africa. The joint initiative will tackle key investment challenges that have been holding back crucial energy investment across Africa.
Munich/Nairobi. The African Energy Guarantee Facility will significantly boost private investment in sustainable energy projects, expanding access to clean energy and contributing to achieving the UN Sustainable Development Goals.
The scheme will support new private sector investment in eligible renewable energy, energy efficiency and energy access projects in 25 sub-Saharan African countries.
Munich Re CEO Joachim Wenning: “The African Energy Guarantee Facility is another example of our strategy to create new markets by pushing back the boundaries of insurability. Munich Re has become the go-to reinsurer when it comes to creating innovative solutions and forging new partnerships. The AEGF will remove a major obstacle for renewable energy investments in Africa. For Munich Re, the AEGF is a blueprint for risk-sharing between reinsurers, primary insurers and international financial institutions. We strive to address further impediments to the development of emerging countries with comparable solutions.”
Werner Hoyer, President of European Investment Bank: “Sustainable energy investment in Africa is crucial to improve access to energy, cut energy bills and enhance the deployment of renewable energy. This exciting new partnership between the EIB, Munich Re and ATI combines technical, financial and industry experience and local knowledge essential to tackle investment barriers. As the EU bank, the EIB is committed to supporting Sustainable Energy for All, and the African Energy Guarantee Facility has established a clear model for partners to join and others to follow.”
ATI CEO George O. Otieno: “Reliable access to a clean and efficient energy supply is key to building a sustainable economic base. With the increased availability of clean energy, Africa will be able to attract more investments, create environments where companies can thrive, and build healthier communities where pollution and climate change wreak less havoc on daily life. In this sense, AEGF represents hope – and equally importantly, it also sends a strong signal to investors and financiers that renewable energy projects in Africa are now bankable.”
Products offered under the AEGF will include insurance against sovereign or sub-sovereign non-payment under a PPA, expropriation and breach of contract, currency inconvertibility, war, civil unrest and arbitration award default. As yet, the commercial insurance market has been cautious and has shown limited appetite to issue such political risk protection for long tenors in Africa’s energy sector. As a consequence, private companies are discouraged from investing in Africa’s energy sector because of the discrepancy between the long-term investment needed for energy projects and the short timeframe in which the political landscape may change. Therefore, the AEGF is expected to have a significant impact in catalysing new sustainable energy projects in Africa.
The African Energy Guarantee Facility was launched following a detailed market assessment, backed by €1m in technical assistance provided through the EU-Africa Infrastructure Trust Fund. This assessment identified market gaps that are holding back investment as well as partners who could help to address market weaknesses. Additional technical assistance also has been provided by the EIB to enhance the provision of dedicated energy sector investment insurance services.
Around 600 million people out of a total population of 1 billion in sub-Saharan Africa currently lack access to electricity, and most countries experience power shortages on a daily basis. To accommodate the expected population growth by 2030, annual investments of around US$ 90bn in energy infrastructure are needed.
Last year, the European Investment Bank provided €2.6bn for new investment across Africa. Projects supported include improving agriculture, energy, communication, transport and water infrastructure, as well as strengthening microfinance lending and private-sector investment across the continent.
Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. This is how Munich Re creates value for clients, shareholders and staff. In the financial year 2017, the Group – which combines primary insurance and reinsurance under one roof – achieved a profit of €0.4bn. It operates in all lines of insurance, with over 42,000 employees throughout the world. With premium income of around €32bn from reinsurance alone, it is one of the world’s leading reinsurers. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. Its primary insurance operations are concentrated mainly in ERGO, one of the leading insurance groups in Germany and Europe. ERGO is represented in over 30 countries worldwide and offers a comprehensive range of insurances, provision products and services. In 2017, ERGO posted premium income of €17.5bn. Munich Re’s global investments (excluding insurance-related investments) amounting to €218bn are managed by MEAG, which also makes its competence available to private and institutional investors outside the Group
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